How to Choose a Reputable Forex Broker

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The Forex industry has gained a bit of a bad reputation, even before the recent financial crisis Forex was seen as the root of all evil. High profile traders like George Soros breaking the Bank of England on black Monday whilst also being blamed for the Asian financial crisis of 1997 hardly give the industry a good name.

And that’s before we get to the seemingly endless list of scammers offering to sell you Holy Grail systems that turn $250 into $1 million in twelve months without any experience whatsoever.

The Forex market is renowned for being volatile; millions can be won or lost on a single trade, it doesn’t matter if trades go up or down somebody somewhere is making money. It’s the promise of making millions with little effort the scammers capitalize on. I mean who wouldn’t want to make a million a year whilst sitting on the beach?

High Leverage is a One Way Ticket to Bankruptcy

Unfortunately some less reputable Forex brokers have emerged that prey on this naivety. They know the promise of 1000 times leverage turns $250 into $250,000 and that sounds inviting to the uninitiated. After all if your trade increases by just 1% that’s $2500 you’ve just made from an initial $250 deposit.

But look at it another way, what if your trade decreases by 0.1% where is your $250 then? Now which of these two scenarios do you think is most likely to happen over a ten minute period?

In all my years of trading I can count on the fingers of one hand the number of instantly profitable trades, and that’s amongst many thousands of Forex trades, the fact is even profitable trades aren’t instantly profitable. The risk to your capital at 1000 times leverage is extraordinarily high. You’re guaranteed to lose your deposit trading at that kind of leverage, you’d be lucky if you lasted two trades.

How to Avoid the Sharks

So how do you choose a reputable Forex broker? Well first you should look at how they’re regulated. A broker that’s registered in Cyprus isn’t regulated to the same standard as a broker based in the USA.

In the US it’s illegal to offer leverage of more than 1:50, even this is still considered high, most professional traders don’t go over 1:10 and then it’s used sparingly.

That’s not to say all brokers registered in Cyprus are bad brokers, there are in fact several good brokers based there including eToro. But you should be aware that rules of leverage are significantly different.

Another thing to look for is training and education; a broker that’s set up purely to fleece you out of your hard earned cash has no interest in teaching you how to trade properly. They simply want you to deposit your money leverage it to the max and lose it as quickly as possible.

A reputable Forex broker only survives if a large proportion of its traders continue trading. Continually recruiting new customers is expensive so it’s in their interests if you stick around. Therefore a good broker will offer high levels of education and a multitude of tools to help you trade.

The very best brokers offer trading communities for you to learn from, a good example of this is Zecco who offer one of the best trading communities around or eToro who enable you to follow along with more experienced traders for free.

Trading Forex can be a very solitary experience, so making use of a trading community and networking with other members is not only beneficial to your soul but should enable you to develop a better trading strategy and learn proper money management skills, not to mention make a few new friends.

So if you follow these guidelines you shouldn’t go too far wrong. Just remember there is no Holy Grail, no system is 100% perfect despite what they claim. So don’t be fooled by high leverage, trading at 1:100 or more is guaranteed to bankrupt you in the short term.

Look for a broker that has a good trading platform with excellent training materials, if you can find one that offers a trading community so much the better.

If you’re a beginner I can recommend eToro, based in Cyprus and offering 1:400 leverage they may at first glance seem to be on the wrong side of legitimate, but they do have one of the better trading communities around with excellent training materials along with an excellent platform perfect for rookies and you don’t have to use all that leverage.

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